Income-contingent repayment is an arrangement for the repayment of a loan where the regular (e.g. monthly) amount to be paid by the borrower depends on his or her income. This type of repayment arrangement is mostly used for student loans, where the ability of the new graduate borrower to repay is usually limited by his or her income.
United Kingdom
Income-contingent repayment has been available for
student loans in the United Kingdom
Student loans and grants in the United Kingdom are primarily provided by the government through the Student Loans Company (SLC), an executive non-departmental public body. The SLC is responsible for Student Finance England and Student Finance Wales ...
since 1998. The Student Loans Company (SLC) that manages student loans for students studying in the UK makes sure that the repayment of loans only begins after the student has left higher education and is earning over a threshold of:
* £18,330 for Plan 1 loans: (Scotland and Northern Ireland) & (England and Wales for loans taken before 1 September 2012)
* £25,000 for Plan 2 loans: (England and Wales for loans taken after 1 September 2012)
These loan repayments are collected via the
pay-as-you-earn (PAYE) tax system by employers deducting them from the salary of their employees and passing the money on to
HM Revenue and Customs (HMRC) along with other contributions (
income tax and
national insurance
National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their famili ...
). HMRC then provides the full financial year's worth of deductions to the Student Loans Company beginning from May after the financial year and may provide updates until December. Customers receive their statements 30 days after their accounts are updated. The loans are also repaid through
tax returns by
self assessment
In social psychology, self-assessment is the process of looking at oneself in order to assess aspects that are important to one's identity. It is one of the motives that drive self-evaluation, along with self-verification and self-enhancement. Se ...
, with payments due by January following the end of the financial year and forwarded to SLC in April. Customers who reside or work overseas are required to contact SLC to arrange repayment of their loans directly to SLC with another means of income assessment.
This is different from the previous "mortgage style" loans, which have now been sold by SLC to other loan companies including
Erudio Student Loans Erudio Student Loans is a consortium formed by debt collectors Arrow Global and private equity firm CarVal Investors in 2013.
The firm was the successful bidder in an auction to buy non-performing U.K. student loans in 2013, paying £160m to buy ...
, Theisis Servicing and Honours Student Loans, that set a fixed monthly payment irrespective of the graduate's income.
United States
Income-contingent repayment of student loans has been formally proposed in the United States, in various forms, since 1971. The concept has been championed by politicians from both the right and the left. Currently there are a number of
loan repayment options available to
U.S. federal student loan borrowers, including some that are based on the borrower’s
income.
[https://studentaid.ed.gov/repay-loans/understand/plans]
See
Income-Based Repayment
Income-based repayment or income-driven repayment (IDR) is a student loan repayment program in the United States that regulates the amount that one needs to pay each month based on one's current income and family size.
The phrase is an umbrella ...
for detailed information.
References
Student financial aid